Every year, more than 500,000 small businesses are born, according to the SBA. That translates into a lot of new business owners with the same concerns – How do I keep my finances straight? What do I have to do? It has to be EASY!
Even if you have the budget to hire a qualified bookkeeper or accountant to help you out, you need to understand the recordkeeping needed to manage your business. Without that understanding, you won’t know enough to make the best investment decisions about your financial systems and processes.
You may not hear this every day, but the IRS is pretty darned helpful. They offer plenty of recordkeeping guidance, whether you keep your business records using paper or a computer. Loads of written instructions and examples about business financial records and taxes are right on their website at http://1.usa.gov/1MRdHHx. A great place to start is Publication 583, Starting a Business and Keeping Records, at http://1.usa.gov/1T3D1h5.
Any System Requirements?
No, the IRS does not specify a particular system or format for business records. Computer software packages purchased online or in retail stores are acceptable. They are generally very helpful and relatively easy to use, and require very little knowledge of bookkeeping and accounting.
The only requirement is that any system you use is set up so your transactions and reports are accurate and complete. To meet this requirement, the financial system must reconcile and provide enough detail to identify the underlying source documents. Those underlying source documents may be kept electronically.
Focus on Results
However you decide to keep your business records, focus on getting the results you need – sufficient information to manage your business and determine your correct tax liability. “Sufficient” is different for each business. Be sure your system meets your needs by documenting a complete description of these four processes:
(1) Functions being performed as data is processed or as it flows through the system;
(2) Processes to ensure accurate and reliable information;
(3) Processes to prevent the unauthorized addition, alteration, or deletion of retained records;
(4) Charts of accounts and detailed account descriptions.
Paying a qualified and experienced professional to help set-up sufficient recordkeeping is a great option. It’s even better to get free information and feel confident that your records are adequate for your business and the IRS.